The likelihood of a December rate cut by the Federal Reserve appears increasingly slim after Fed Governor Michael Barr signaled growing concerns about inflation, deepening divisions among policymakers over the future path of interest rates. Barr, a voting member of the Federal Open Market Committee (FOMC), expressed unease about persistent inflation, joining a growing faction of hawkish officials.
Following back-to-back rate cuts in September and October—marking the first easing cycle in a year—traders who had priced in three consecutive cuts in 2024 are now shifting toward a hawkish stance. This shift has triggered a sustained decline in risk assets, including stocks and cryptocurrencies, as expectations for the rate trajectory harden. The Fed is now split into two opposing camps: a hawkish faction advocating for a pause and a dovish group pushing for further cuts. This division contributed to Thursday’s dramatic reversal in U.S. stocks, which initially rallied before plunging sharply.
Nick Timiraos, a prominent financial journalist often regarded as the "Fed whisperer," noted that the latest September nonfarm payroll report has further widened the rift among Fed officials. Both hawks and doves found justification for their stances in the mixed jobs data, while a lack of recent economic indicators has made consensus-building even harder.
Despite blockbuster earnings and AI-driven optimism from Nvidia and Google, alongside a "Goldilocks" labor market report, risk assets faced a brutal selloff as Bitcoin tumbled below $90,000 and traders focused on the Fed’s hawkish tilt. The S&P 500 initially surged 1.44%, and the Nasdaq jumped 2.18%, only to reverse sharply by midday. By the close, the S&P had dropped 1.56%, while the Nasdaq plummeted 2.16%.
The September jobs report painted a contradictory picture: job growth exceeded expectations, but the unemployment rate unexpectedly climbed to a four-year high. As the final employment snapshot before the December FOMC meeting, the lagging and conflicting data has left policymakers more divided than ever on the rate path.
Barr, who oversees banking supervision and rarely comments on monetary policy, struck a cautious tone Thursday, emphasizing the need for prudence in considering further cuts. While he did not explicitly oppose additional easing, his concerns about stalled progress toward the Fed’s 2% inflation target—amid Trump-era tariffs—add pressure on Chair Jerome Powell to bridge the growing divide ahead of the December 9-10 meeting.
Interest rate futures now price in just a 40% chance of a December cut, down sharply from 80% last month. Barr supported the September and October cuts but has yet to signal his stance for December. With other 2025 FOMC voters already split between supporting or opposing a third cut, his vote could prove decisive. For now, his cautious lean gives hawks a slight edge.
After a prolonged government shutdown delayed key data releases, the Fed is finally receiving fresh economic indicators—but they’ve done little to resolve policymakers’ disagreements. The September jobs report showed employers added 119,000 net jobs (the strongest since April), but prior months’ figures were revised down, and unemployment inched up to 4.4%. Barr described the labor market as "cooling" but noted job growth remains near the "breakeven" pace needed to stabilize unemployment.
Hawkish voices grew louder Thursday as Cleveland Fed President Beth Hammack (a 2026 FOMC voter) dismissed the jobs data as "stale" and reiterated her opposition to further cuts, warning that easing could threaten financial stability. She argued that loose financial conditions—evident in soaring stocks and easy credit—should support 2024 growth.
Meanwhile, Chicago Fed President Austan Goolsbee (a 2024 voter) also tilted hawkish, expressing deep concern about cutting again in December. Fed Governor Lisa Cook acknowledged rising risks of asset price declines but saw no systemic vulnerabilities akin to the Great Recession.
Kansas City Fed President Jeff Schmid (a 2025 voter), a leading hawk, voted against the October cut, fearing it would undermine inflation progress. Dallas Fed President Lorie Logan (2026 voter) similarly cited persistent inflation and a still-resilient labor market as reasons to pause.